PROCUREMENT OF EXTERNAL FINANCIAL AUDIT SERVICES

REQUEST FOR INFORMATION (RFI)

22 Aug 2018 v1.0 (Issue)

1

PART 1

INTRODUCTION, PROCESS AND GENERAL

1. Introduction and Process

1.1.The Northern Ireland Audit Office (“NIAO”) is conducting this market engagement exercise (“Exercise”) to seek the views of the market on NIAO’s proposed procurement approach and requirements for external financial audit services.

1.2.Suppliers are asked to comment on the proposed procurement approach and the extent to which this is likely to meet NIAO’s stated objectives.

1.3.All national audit bodies have to ensure a high quality of audit at a price, which represents good value for money for the public purse and the audited body. At the same time there is pressure to reduce costs while improving quality and providing “added value” from outside audit providers.

NIAO is also seeking views on the potential pricing of suppliers’ services.

1.4.The results of this Exercise may be used to inform NIAO’s decision-making process in respect of the potential procurement. This Exercise is not a pre-qualification or tendering exercise and detailed proposals or submissions are not required. It is focusing on market information as a whole, rather than on the merits of individual suppliers.

1.5.You should note that this Exercise includes no element of supplier selection or bid evaluation and responses will not prejudice any future procurement exercise.

1.6.This Exercise will include up to three stages as follows:

1.6.1. Interested suppliers will be asked to respond to a Questionnaire, Pricing Response and Conflicts of Interest Table (see Part 3 and Appendices B and C of this RFI);

1.6.2. Following receipt of responses, NIAO may decide to hold meetings (potentially more than one round) with suppliers who have submitted responses to the Questionnaire to discuss their submissions. The meetings are planned to be held during the week commencing 17 September 2018, depending on the responses. These meetings may be face-to-face or by telephone. Unfortunately, NIAO may not be able to meet all suppliers that submit a response due to time and resource constraints. Therefore, if NIAO decides to hold meetings, an invitation will be issued, and slots will be allocated over up to four days on a first come, first served basis. Meetings will be limited to no longer than two hours. As the intention of this process is to obtain feedback on

2

the approach and requirements, supplier presentations and marketing information will not be required;

1.6.3. NIAO may also issue written requests for clarification of responses where required.

1.6.4. It is currently estimated that any formal tender process for external financial audit services would commence in late September 2018.

2. Disclaimers and exclusions

2.1.This document is provided solely for the purposes of obtaining feedback from interested organisations on the future provision of external financial audit services. It does not commit NIAO to any scope or content of procurement or to any procurement as outlined in this document, associated Prior Information Notice (“PIN”) or otherwise, and any submission returned in response to this Exercise does not constitute any contractual agreement between the respondent and NIAO. NIAO reserves the right at any time and without notice to withdraw this RFI, to terminate this Exercise and to make any changes at its sole discretion to the timetable, structure or content of this Exercise, and to waive any requirements of this Exercise.

2.2. The recipient of this RFI should note that the information it contains is preliminary in nature and is subject to amendment. No decision has been made as to the form of any procurement exercise, which NIAO may alter at its entire discretion, and any decisions on whether to hold a procurement exercise and the form of any exercise are subject to the necessary approvals. Accordingly, no reliance should be placed on any information contained in this RFI and neither NIAO nor its advisors will accept any liability for its accuracy, adequacy or completeness, nor will any warranty, expressed or implied, be given. The above exclusion extends to liability in relation to any statement, opinion or conclusion contained in, or any omission from, this RFI and in respect of any other written or oral communication transmitted or otherwise made available to any recipient of this RFI or party registering interest, and no representations or warranties are made in relation to such opinions, statements or conclusions. This exclusion does not extend to any fraudulent misrepresentation made by or on behalf of NIAO. Recipients of this RFI and other interested parties and their advisers must therefore take their own steps to verify the accuracy of any information which they consider relevant and are not entitled to rely on any statement or representation made by NIAO or its advisors.

2.3.This RFI should not be regarded as an investment recommendation made by NIAO or its appointed advisers. Each party to whom this RFI is made available must, at its own cost, make an independent assessment of the potential opportunity set out in this document. Neither NIAO nor its advisers shall be liable for any costs or expenses incurred by or on behalf of any recipient of this document in

3

connection with this Exercise.

3. Deadline for Response

3.1.Suppliers are asked initially to register their interest in this Exercise at:

procurement@niauditoffice.gov.uk

preferably providing details of their key contact, contact details and address of their business.

1.1.NIAO is working to a tight deadline and, as such, responses to the Questionnaire and Appendices must be received at:

procurement@niauditoffice.gov.uk

no later than 15:00 on 6 September 2018.

1.2.NIAO will be under no obligation to review responses received after that deadline.

4. Queries

4.1.Respondents should not address queries to, or communicate with NIAO staff or their advisors other than in the manner provided in this section. No queries or communications should be submitted to the bodies listed in this document in relation to this Exercise. Any queries arising from this RFI which may have a bearing on your response should be raised in writing with NIAO by submitting queries to:

procurement@niauditoffice.gov.uk

as soon as possible and no later than 15:00 hours on 29 August 2018.

1.3.NIAO is required under the Public Contracts Regulations 2015 to take appropriate measures to ensure that competition is not distorted by the participation by any supplier in this Exercise. Such measures may include (but are not limited to) the communication to other interested suppliers of relevant information exchanged in the context of or resulting from the involvement of the supplier in this Exercise. NIAO reserves the right to publish any queries (anonymised) and responses, and the content of any interviews, to all interested suppliers. If you wish NIAO to treat a request as confidential, you must state so. If, in the opinion of NIAO, the content of a request is not considered to be confidential, NIAO will inform you and you will have an opportunity to withdraw the request.

1.4.NIAO will use reasonable endeavours to respond to queries received by the deadline specified in paragraph 4.1 of this Part 1.

4

5. Confidentiality

5.1.The Information contained in this RFI is the property of NIAO and may not be used or reproduced except for the purpose of providing a response.

5.2.While the information contained in suppliers’ responses to this Exercise will remain the property of the respondent, NIAO shall have the right to copy, modify, and distribute all materials submitted by the respondents in connection with this Exercise, including to its advisors.

6. Freedom of Information

6.1. You acknowledge that NIAO is subject to the requirements of the Freedom of Information Act 2000 and the Environmental Information Regulations 2004 (together, "the Acts").

6.2.Accordingly, all information supplied by you to NIAO will be treated in confidence except for the disclosure of such information as may be required in accordance with the requirements of UK government policy on the disclosure of information relating to government contracts including the Acts. NIAO may also decide to include certain information in the publication scheme which it maintains under the Acts.

6.3. If you consider that any of the information included in your submission in response to this RFI is commercially sensitive, you should clearly identify such information as “Commercially Sensitive” and explain what harm may result from disclosure if a request is received, and the time period applicable to that sensitivity. You should be aware that, even where you have indicated that information is commercially sensitive, NIAO might be required to disclose it.

7. Outline Timetable

The following table presents the outline indicative timetable for this Exercise. The content is subject to change at the discretion of NIAO at any time and without notice:

Milestone

Activity Date

1 Issue PIN 20 August 182 Last date for queries 29 August 183 Receive supplier Questionnaires 6 Sept 184 Hold optional interviews with responding

suppliersw/c 17 Sept 18

5

PART 2

BACKGROUND

1. Background to Requirement

1.1.The Comptroller and Auditor General (C&AG) for Northern Ireland and NIAO are wholly independent of Government. The NIAO seeks to hold public bodies to account for the way they spend public money. It does this by providing objective information, advice and assurance on how public funds have been used and encouraging best practice in financial management, good governance and propriety in the conduct of public business.

1.2.The C&AG (through the NIAO) is responsible for the financial auditing of Northern Ireland Government Departments, their executive agencies and a wide range of other public bodies, including health and personal social care bodies. The C&AG is also responsible for carrying out Value for Money studies across these areas.

2. Existing Approach

2.1.The NIAO currently uses a mixture of contract staff and outsourcing of audit contracts on an annual basis. NIAO maintains a strong in house public audit service and uses outsourcing primarily to support the delivery of financial audits in peak periods, mainly by sub-contracting approximately 30 per cent of its financial audit work to the private sector.

2.2.NIAO has audit services contracts with 7 suppliers, which were procured between 2013 and 2017 on an initial 3 year basis with the option to extend for a further 2 years.

2.3.The contracts are at various stages of their lifecycle. Those procured in 2013-14 will expire in 2018, and those procured in 2017 will not expire until 2020 at the earliest.

2.4.The suppliers provide external financial audit for a number of NI public bodies, ranging from councils to Non-Departmental Public Bodies (“NDPBs”) and Health Bodies, including 5 of the 6 health and social care trusts.

2.5.Under the existing approach each procurement has been divided into lots, with each lot, in the main, containing a single organisation.

3. Need

3.1.NIAO continues to have a need to outsource audit work and expects this to remain at current levels.

3.2.Although the existing contracts will expire at different times, all the audit capacity they represent will need to be replaced.

6

4. Proposed Approach

4.1.Contracting Frequency

4.1.1. For the 2018 contracting exercise, NIAO proposes to change its approach, from contracting on an annual basis, to a one off exercise covering 5 years.

4.1.2. As noted in paragraph 3.2 all current contracts will need to be replaced. Those let in 2016 and 2017 will not expire until 2019 and 2020 respectively, and services in respect of the bodies covered by these contracts would be phased in to the new arrangements when they expire. This will bring the contracts into alignment.

4.2.Lot structure

4.2.1. It is proposed that, instead of having multiple lots on an organisational basis (in the main), there will be fewer lots on a sectoral basis.

4.2.2. Lots proposed for consideration are:

4.2.2.1. 1 - Central Government

4.2.2.2. 2 - Health Service

4.2.2.3. 3 - Local Government

4.2.2.4. 4 - Further Education

4.2.2.5. 5 - IT

4.2.2.6. 6 - Pensions

4.2.3. The proposed lot structure and contents are detailed in the Pricing Response in Appendix B to this RFI.

4.2.4. NIAO is proposing that there will be two firms supplying audits in Lot 1 - Central Government and Lot 2 - Health Service due to the span of organisations covered and the greater potential for conflicts of interest, and one firm in each of the other lots. See paragraph 6 of this RFI.

4.3.Procurement Approach

4.3.1. It is envisaged that the 2018 procurement exercise will use the EU Open Procedure. This is a single submission process, in which all tenders submitted in each lot would be assessed against the published selection and award criteria for that lot to determine the winning tenderer(s) in each.

7

4.4.The total annual value of services to be contracted out is around £1 million.

5. Objectives

5.1. The objectives of the potential procurement are as follows:

5.1.1. obtain services that meet the core requirements of conformance to professional auditing standards and guidance, probity and independence;

5.1.2. obtain a high quality of service delivered within an effective contractual performance management regime;

5.1.3. ensure a partnership with external suppliers;

5.1.4. foster Northern Ireland sectoral expertise with associated efficiency benefits; and

5.1.5. provide access to associated specialist services, including IT and Pensions Audit.

6. Conflicts of Interest

6.1.NIAO must ensure that there are no conflicts of interest with the work done to provide external audit services to NI public bodies. Such conflict may arise, for example, where a supplier carries out any other work on behalf of one or more of the audited organisations. NIAO, in common with the other national audit offices, must ensure that audits conducted in its name can be relied upon to be independent. While it would be NIAO’s final decision as to whether a conflict existed, and the action to be taken, the assessment would be based on the 2016 Ethical Standards, issued by the IAASB, as applied to Public Interest Entities.

6.2.This may not be such an issue in the smaller sectors such as Further Education, but there is potentially more of a problem with sectors including a larger number of bodies, such as Health Service and Central Government. In view of this, having two suppliers in these larger sectors would enable NIAO to reduce the impact of any conflict of interest. It will provide the capability to deal with conflict with one supplier by allocation to the other, in the event that the other supplier had no similar conflicts. This would be done in such a way as to maintain equality of the suppliers’ portfolios as far as practically possible. If both suppliers were conflicted NIAO could decide to take the relevant audit in house or use alternative arrangements. If the conflict were in respect of a body to be phased in later in the contract term, as long as the supplier agreed to dispose of the activity causing the conflict there may be no need to reallocate that work.

6.3.All Lots except Lot 5 will have a “core” threshold level of audit work comprising 75% of the value of the Lot. Suppliers must bid for a

8

sufficient number of bodies to meet this threshold, without conflicts of interest.

6.4.NIAO is seeking to explore this further in this Exercise, and suppliers are asked to provide brief details of conflicts with any of the organisations listed in Appendix C in the format provided.

7. Proposed Pricing Approach

7.1.The Audited Body Notional Value (ABNV) is the NIAO’s estimated cost of high quality audits meeting all of its objectives for each organisation over five years.

7.2.The ABNV for each body in each Lot is detailed in the Pricing Response in Appendix B. As part of a potential tender exercise, tenderers would be asked to submit an individual cost for each audit in the Lot but excluding those audits for which they were conflicted.

7.3.Each tenderer, which excluded audits on the grounds of conflicts, would have a lower aggregate ABNV for that Lot. The NIAO would evaluate the tenderer’s bid rate for that proportion of the Lot.

7.4. In a potential tender exercise, it is proposed that the assessment team would assess contract price in tender responses based on the bid rate submitted by tenderers expressed as a percentage of the aggregate Audited Body Notional Value (ABNV) applicable to the Lot.

7.5.The allocation of audits would consider conflicts and an equal (as far as practically possible) split of audits by value between the two successful tenderers in Lots 1 and 2.

7.6.The total price in relation to each Lot would be the total of individual audit prices in the tenderer’s bid for each of the audits allocated to the winning tenderer.

7.7.NIAO is proposing to increase the weighting awarded to quality (non-price) factors. A worked example showing how the bid rates are proposed to be calculated and scored is set out in Appendix A.

7.8.This proposed pricing approach is for consideration only at this stage and NIAO may make changes for any future tender exercise.

8. Audit Quality

8.1.To assess the tenderers’ quality offer, the NIAO would propose to ask tenderers to state how they would provide the required services in the public audit environment, understand audited body expectations and deliver against NIAO requirements.

9

8.2.NIAO would propose to include contractual audit, compliance and management mechanisms, including regular reports and reviews and measurement against Key Performance Indicators (“KPIs”).

10

PART 3

SUPPLIER QUESTIONNAIRE

1. Introduction

1.1.Suppliers are asked to complete and return this Questionnaire together with Appendices 2 and 3 to provide feedback to NIAO on its proposed approach to contracting for external financial audit services over the next 5 years.

2. Instructions for Completion and Submission

2.1.Please read carefully and respond in accordance with these instructions.

2.2.Please set out in the Questionnaire below your answers to the questions where indicated. In section 2 of the Questionnaire, your answers should be placed within the space marked “Response”. This space may be expanded as necessary within the word limitations specified. Please note that sales and marketing information is not considered relevant to this process, and will not usually be considered. However, any relevant case studies or examples can be provided in a separate appendix to your submission. Where you feel that any information in your appendix (if submitted) is wholly or highly relevant to your Response please reference this in the relevant individual Response. NIAO reserves the right not to read any such additional appendix submitted.

2.3.Each individual Response in the space below the questions should not exceed the stated number of words. If the Response exceeds these limits NIAO reserves the right not to review the excess words. Please use no smaller than Arial 10 point for ease of reading.

2.4.Please note that information contained within your submission is not deemed to be contractual in nature or confer obligations on the part of suppliers; nor shall such information be deemed to constitute an offer capable of acceptance. These considerations should specifically be borne in mind when engaged in the requested estimation of budgetary costs.

2.5.Your submission must be returned by email to the following address:

procurement@niauditoffice.gov.uk

No later than 15:00 on Thursday, 6 September 2018

2.6.Your submission should be in accordance with the following requirements; MS Word is preferred for the Questionnaire responses along with PDF formats where the documents are in that format. The Pricing and Conflict of Interest responses should be returned in their original format, and you should note that attachment size should be

11

less than 30MB.

2.7.Your Questionnaire, Pricing and Conflict of Interest responses should be emailed with the subject line “NIAO RFI Response – [supplier name].

2.8.Please also include your company name in the filename of each part of your submissions.

2.9.Note: You should only return the: Questionnaire, Pricing Response (Appendix B), Conflict of Interest table (Appendix C), and Any additional information appendix, as stated at paragraph

2.2 of this Part 3 which should be part of your Questionnaire response.

You are not required to return the complete RFI.

2.10. Please note that all financial information submitted in response to this Questionnaire should be denominated in British Pounds (“GBP”) excluding VAT.

3. Late Submissions

3.1.Suppliers are responsible for submitting by the due date and time. NIAO will not be obliged to consider any submissions sent after 15:00 on 6 September 2018.

3.2.Please note that your submission will be on the basis that you consent to the analysis of submissions (in full or part) being undertaken by an advisor(s) to NIAO and/or a third party commissioned by NIAO for such purposes.

12

QUESTIONNAIRE

1. COMPANY INFORMATION

Please provide information about your company and services by completing the proforma below.

Company name:

Primary business:SME: (Yes/No)Address:

Contact person: Position:

Telephone no: email:

2. YOUR FEEDBACK ON NIAO’S PROPOSED APPROCH

1 Please provide a general overview of your understanding of NIAO’s Proposed Approach (Part 2 section 4 of this RFI) and any issues you have identified with this.

Response(500 words)2 Please give your views on the following parts of NIAO’s proposed

approach, and any issues you have identified:

2a Contracting Frequency (Part 2 paragraph 4.1);Response(500 words)2b Lot Structure (Part 2 paragraph 4.2).Response(500 words)3 Please provide your views on the suitability of the proposed approach

(Contracting Frequency and Lot Structure) to deliver each of the Objectives stated at Part 2 section 5.

Response(1,000 words)4 Please state any additional mechanisms or approaches that you believe

would contribute to enhanced quality of service. These may be contractual or otherwise.

Response(1,000 words)

5 NIAO must ensure it deals with conflicts as required by the 2016 ethical standards as described in Part 2 paragraph 6.Please provide brief details of how your organisation manages conflicts of interest.

Response(500 words)

13

6 Please provide an indication of your potential bid structure for meeting these requirements, including if you would intend to meet them from your own resources, or sub contract or form a consortium. NIAO recognises that this would only be an early indication of your potential response.

Response(500 words)

7 Please comment on NIAO’s proposed pricing approach outlined at Part 2 section 7 and the worked example at Appendix A of this document. Include any alternative approaches that you feel will facilitate the delivery of the Objectives and provide best value for money.

Response(500 words)8 Please comment on NIAO’s proposed audit quality approach outlined at

Part 2 section 8. Include any alternative approaches that you feel will facilitate the delivery of the Objectives and provide best value for money.

Response(500 words)9 Please comment on how you would resource and manage delivery of the

services, including liaison with NIAO to ensure that contractual standards are met.

Response(500 words)10 Please state what due diligence and information you would need from

NIAO to enable you to bid.Response(500 words)

11 Please state if there are any alternative approaches that you believe would better deliver any or all of the Objectives and give reasons.

Response(1,000 words)12 Please provide any other comments that you consider relevant.Response(1,000 words)

3. CONFLICTS OF INTEREST

NIAO is seeking to understand the level of conflicts of interest that exists in relation to the bodies to be subject to external audit.

Suppliers are therefore requested to complete the matrix at Appendix C, to indicate which jobs may have a conflict. This will assist us in our consideration of managing conflicts.

4. Indicative Costs

Suppliers are asked to complete the Pricing Response to assist NIAO in assessing a realistic cost of completing audits of good quality (ABNV).

14

To achieve this Suppliers are therefore requested to indicate their estimate of costs in one of the three bands below:

Band 1 which is ABNV, Band 2 which is ABNV +10% and Band 3 which is ABNV+20%.

Details of the pricing templates for each of the Lots are contained in Appendix B.

Pricing Response Assumptions

Prices per band should be at an August 2018 base price.

Prices should be expressed excluding VAT; and

NIAO is keen to get a realistic representation of costs so please provide a prudent pricing response.

15

APPENDIX A

WORKED EXAMPLE OF PRICING

16

APPENDIX B

PRICING RESPONSE (INDICATIVE)

17

APPENDIX C

CONFLICTS OF INTEREST TABLE

Information on bodies for which the Supplier has an independence issue and so may be unable to provide audit services The details requested are for information only.

Name of audited body Please insert an X if you have a potential conflict

Optional - Brief explanation of the reasons for noting the potential conflict

Lot 1 Central GovernmentEquality Commission NI

General Consumer Council for NI

Strategic Investment Board Limited

NI Museums Council

National Museums NI

Probation Board NI

Livestock and Meat Commission

NI Probation Board

NI Statistics and Research Agency

Forest Service NI

NI Environment Agency

Driver and Vehicle Agency

Council for the Curriculum Examinations and Assessment

Council for Catholic Maintained Schools

Youth Council for NI

Office of the Police Ombudsman for NI

Criminal Justice Inspection NI

NI Courts and Tribunal Service

Youth Justice Agency

Legal Services Agency NI

Health and Safety Executive for NI

Funds in Court

Armagh Observatory and Planetarium

Police Rehabilitation and Retraining Trust

NI Screen

NI Library Authority

18

Name of audited body Please insert an X if you have a potential conflict

Optional - Brief explanation of the reasons for noting the potential conflict

Lot 2 Health

Health and Social Care Board

Public Health Agency

NI Blood Transfusion Service

NI Medical and Dental Training Agency

Patient and Client Council

NI Ambulance Service

NI Social Care Council

NI Practice and Education Council

NI Guardian Ad Litem Agency

South Eastern Health and Social Care Trust

Belfast Health and Social Care Trust

Southern Health and Social Care Trust

Western Health and Social Care Trust

Regulation and Quality Improvement Authority

Lot 3 Local Government

Antrim and Newtownabbey Borough Council

Fermanagh and Omagh District Council

Ards and North Down Borough Council

Mid Ulster District Council

Lot 4 Further Education

North West Regional College

South Eastern Regional College

Southern Regional College

South West College

Lot 5 IT

Business Services Organisation

HR Connect

19

Name of audited body Please insert an X if you have a potential conflict

Optional - Brief explanation of the reasons for noting the potential conflict

Lot 6 Pensions

Police Service NI Pension Scheme

NI Judicial Pensions Scheme

Superannuation Accounts

NI Local Government Officers’ Superannuation Committee /

Ulster Supported Employment Limited

NI Fire and Rescue Service

20